MTD InfraPerdana Bhd - 2008

MARC has affirmed its AAID long-term rating on MTD InfraPerdana Bhd’s (MTD InfraPerdana) RM700.0 million Islamic Medium Term Notes (IMTN) programme. The rating reflects MTD InfraPerdana's strong operating profitability, underscored by the sustained traffic flows on the established and matured toll highways operated by wholly-owned subsidiaries, MTD Prime Sdn Bhd (MTD Prime) and Metramac Corporation Sdn Bhd (Metramac). The rating also reflects robust operating margins which afford substantial protection of operating profitability against inflation. These strengths, however, are moderated by MTD InfraPerdana’s traffic volume risk and an anticipated weakening in debt protection measures as a result of an upcoming capital repayment exercise. The rating carries a stable outlook.

MTD InfraPerdana is an investment holding company listed on the Main Board of Bursa Malaysia. Currently the company has interests in four toll road facilities through its wholly-owned subsidiaries, namely MTD Prime and Metramac. MTD Prime is the concessionaire for the Kuala Lumpur-Karak Highway (KLK) and its extension, the East Coast Expressway Phase 1 (ECE1), both of which have a remaining concession tenure of 25 years. The 60km KLK is the main artery road connecting the Klang Valley and Karak town. The 174.5km ECE1 begins from Karak to the Pahang-Terengganu border. Metramac, the concessionaire for the East-West Link Expressway (EWL) and Kuala Lumpur-Seremban Expressway, which was acquired from Metacorp Berhad (Metacorp) in December 2005. The remaining life of the concessions for both EWL and Kuala Lumpur-Seremban Expressway is 10 years.

In financial year ended (FYE) 31 March 2007, all highways registered growth in average daily traffic. KLK, being the primary link between the Klang Valley region and the East Coast corridor, recorded traffic volume of 29,523,587 Passenger Car Units (PCUs) for the year and is expected to benefit from the toll rate hike effective from 1 January 2007. EWL and ECE1’s traffic volumes increased 1.9% (2006: 7.7%) and 7.7% respectively in FY2007. Meanwhile, Kuala Lumpur-Seremban Expressway registered lower than expected traffic growth of 0.8% vis-à-vis the company’s expectations of 2.0% due to congestion on the highway arising from construction works.

MTD InfraPerdana’s FSCR of 3.66 times, was in compliance with its minimum covenanted level of 1.75 times and within MARC’s expectations. MTD InfraPerdana’s base case cash flows project a minimum FSCR of 1.80 times and average FSCR of 3.72 times between financial year ended March 2008 and financial year ended March 2021. MTD InfraPerdana expects its revenues to grow at a compounded annual growth rate of 5.80% from FY2007 through financial year ended March 2022.
 
MTD InfraPerdana’s gearing as measured by debt to equity - total debt over total of shareholders' funds and minority interest was 1.86 times as at 31 March 2008 has risen significantly from 0.59 times a year earlier. MARC expects gearing to deteriorate further, as a result of an announced selective capital repayment exercise targeted to be completed by this year. This will translate into lower credit protection measures; net gearing of 1.98 times and lower EBITDA interest coverage. Although the stable outlook incorporates a short-term weakening of MTD InfraPerdana’s balance sheet, MARC expects continued strong cash flow generation at its subsidiaries, primarily MTD Prime, to ensure that the overall inflow received by the holding company is more than adequate to cover its debt service. The outlook also assumes that the group will stay committed to maintaining credit quality.

Major Rating Factors

Strengths

• The strategic location of the four toll road facilities under the Group;
• Little significant competition from toll-free roads; and
• Solid traffic growth rates.

Challenges/Risks

• Relatively high debt burden with debt-equity ratio at 1.83 times.